Oracle’s E-Mail Marketing Need Signals ExactTarget Deal

Oct. 25 (Bloomberg) -- ExactTarget Inc., the e-mail
marketer that went public in March, is tempting software firms
from Oracle Corp. to SAP AG to pursue a takeover of one of the
fastest-growing information technology companies in America.

ExactTarget, which counts Microsoft Corp. and Groupon Inc.
among its customers, is projected to more than double its
revenue in the next two years, a higher rate than 93 percent of
U.S.-based information technology software companies valued at
more than $1 billion, according to data compiled by Bloomberg.
The Indianapolis-based company’s stock is up 25 percent since
its initial public offering.

With this month’s purchases of an online-shopping analysis
firm and a provider of marketing management products,
ExactTarget has a more complete package of Web-based marketing
tools that may entice software makers to offer at least a 50
percent premium, said shareholder RCM Capital Management LLC.
While ExactTarget is unprofitable, Oracle, SAP and Microsoft lag
behind in developing comparable marketing technology and may
consider buying the $1.56 billion company, said Barrington
Research Associates Inc. and Royal Bank of Canada.

ExactTarget is “the biggest, fastest-growing market share
gainer in the space,” Robert Breza, a Minneapolis-based analyst
at RBC, said in a telephone interview. “Marketing is going to
get more and more important, especially as the technology
evolves.”

Public Offering

A representative for ExactTarget declined to comment on
whether the company has been approached by any potential buyers
or would be open to a sale.

Founded in 2000, ExactTarget provides software that
companies use to customize e-mails and social-media
advertisements according to user preferences, which are tracked
through clicks. The company had its trading debut in March,
after scrapping its previous plan to go public in 2009 amid the
financial crisis.

While ExactTarget hasn’t reported a profit since 2008 and
is forecast to post losses this year and next, the company’s
revenue has increased every year since at least 2007, data
compiled by Bloomberg show.

ExactTarget is “a very high-quality SaaS company,” said
Jeff Houston, a Chicago-based analyst with Barrington Research,
referring to providers of software as a service.

Revenue Growth

The software provider’s revenue is projected to rise 126
percent from last year’s level to $468 million in 2014,
according to the average analyst estimate compiled by Bloomberg.
Only human-resources software maker Cornerstone OnDemand Inc.
and Splunk Inc., which offers software to help businesses
analyze Web data, are projected for faster growth rates in the
industry, the data show.

The ratio of the ExactTarget’s market value to its revenue
in the past 12 months was 6.3 as of yesterday, compared with an
average of 5.1 times for similar-sized U.S.-based application
software firms that focus on information technology, according
to data compiled by Bloomberg.

ExactTarget’s e-mail, mobile and social-media marketing
technologies are drawing customers at a time when traditional
means of reaching consumers -- newspaper, television and radio
advertisements -- have become less effective, said Tony Ursillo,
a Boston-based technology analyst at Loomis Sayles & Co., which
oversees about $180 billion, including ExactTarget shares.

Internet Marketing

The Internet marketing software industry will generate $17
billion in revenue in 2012, more than print and direct-mail
advertising combined, according to estimates from Los Angeles-based industry researcher IBISWorld. The industry expanded at a
compound annual growth rate of 11.2 percent from 2007 to 2012,
the estimates show.

This month ExactTarget said it spent more than $115 million
acquiring two closely held firms in one day. The company bought
iGoDigital, which provides retailers including Wal-Mart Stores
Inc. and Staples Inc. with software to help customize online
experiences based on consumer behavior, and Pardot LLC for its
business-to-business marketing automation technology with
customers such as Restaurant.com.

Previously, ExactTarget had focused on business-to-consumer
technology, Brett Fodero, a New York-based analyst at Lazard
Capital Markets LLC, said in a phone interview.

50% Premium

With those acquisitions, ExactTarget “has put together a
nice suite of products” that may lure software companies
looking to gain an instant foothold in the expanding digital
marketing industry, according to Walter Price, a San Francisco-based money manager for RCM Capital Management, which oversaw
about $142 billion as of June 30, including ExactTarget shares.

“Rather than assembling a group of five acquisitions, you
can get what you want in one” by buying ExactTarget, Price said
in a phone interview. “It fits nicely into somebody that’s
trying to move into this marketing as a service category.”

ExactTarget’s products and rising revenue may justify a
premium of 50 percent to 100 percent, Price said. That would
value the company’s equity at a minimum of about $35.54 a share,
or about $2.35 billion.

That’s “probably a good place to have the bidding start,”
he said.

Microsoft, Oracle and Walldorf, Germany-based SAP are
starting to develop digital-marketing offerings and could be
interested in buying ExactTarget to accelerate that process,
said Houston of Barrington Research.

21st Century

“It’s the way the industry is moving,” he said. Oracle,
Microsoft and SAP are “just now trying to acquire sizeable
companies to get them in that space.”

Salesforce.com Inc., the largest provider of online
customer management software, also may consider acquiring
ExactTarget to add to its product offerings, said RBC’s Breza.

“Microsoft, SAP, Salesforce.com, Oracle are clearly
companies who need to help and advance themselves towards a
newer solution,” RBC’s Breza said. Those companies have “to
get in the 21st century at this point.”

San Francisco-based Salesforce completed the acquisition of
Buddy Media Inc., a social-media marketing software firm, in
August for about $736 million, according to a regulatory filing.
Oracle said it agreed to buy Vitrue Inc., another digital
marketing company, in May for an undisclosed amount.

Representatives from SAP; Salesforce; Redmond, Washington-based Microsoft; and Redwood City, California-based Oracle
declined to comment on whether the companies were interested in
bidding for ExactTarget.

Staying Independent

SAP is “not on any shopping sprees” for acquisitions, Co-Chief Executive Officer Bill McDermott said in an interview
yesterday with Linzie Janis on Bloomberg Television’s
“Countdown.” SAP, the biggest maker of business-management
software, already owns about 2 percent of ExactTarget shares,
data compiled by Bloomberg show.

ExactTarget management may not want to sell after the
purchases of iGoDigital and Pardot bolstered its potential
growth as an independent company, said Lazard’s Fodero.

Also, acquirers in the industry have been more focused on
private vendors and adding new technology through smaller deals,
he said. ExactTarget may be too big to draw interest, he said.

ExactTarget is a “strategically valuable company,” he
said. Traditional “funnels to bring new customers are broken
and so they need to find something that works, particularly for
customers that are spending a lot more time on electronic media.
This is a way to do that.”